Section 252 of the Act has been amended to provide for the appointment of a director representing the small shareholders. The above provision is applicable to a public company having
2) manner of proposing and seconding such person as the directorIt is understood that all the shareholders of the company will be entitled to vote on the resolution, otherwise, it will defeat the principle of equity. If dividend on preference shares is in arrears, then the preference shareholders will be entitled to vote on all the resolutions at the meeting including appointment of the director representing small shareholders.
It needs to be clarified whether the director elected by the small shareholders is required to hold shares of nominal value of Rs 20,000 or more. At present the director need not have qualification shares. Hence small shareholders can elect a person as director who either holds no shares in the company or holds shares of the nominal value of Rs 20,000 or more, on the assumption that the present situation would continue in the future.Section 292A of the Act provides for appointment of an audit committee, which shall have at least three directors. The auditor, internal auditor and director in charge of finance shall attend and participate at meetings of the audit committee but shall not have a right to vote.
It is stipulated that the committee should have periodical discussions with the auditors about the internal control system, the scope of audit including the observations of the auditors and review half yearly and annual financial statements before submission to the board.
The recommendations of the audit committee on any matter relating to the financial management of the company including the audit report shall be binding on the board. The above provision is rather controversial in that the report of the sub-committee of the board is made binding on the entire board. The reports of commission of enquiry appointed by the government and particularly their recommendations are not binding on it. The same can be argued in the case of audit committees as well.
The audit committee should interalia deal with and concentrate on the internal control system and checks & balances prevailing within the company. The Cadbury Committee had made a distinction between internal control system and internal financial control system. The audit committee should periodically review the systems and procedures followed by the company in respect of purchases, sales, recruitment of employees and consider its adequacy thereof.
What is to be observed is whether the rules and regulations and procedures prescribed are followed by the company's employees at all levels. Further the audit committee should insist on compliance report prepared by the internal auditor.
Explanation for non-compliance of suggestions made by the internal auditor and or audit committee should be considered by the management and steps should be taken for its implementation.
The Act provides that if recommendations of the audit committee are not accepted by the board, then the reasons thereof should be communicated to the shareholders. The Act has made it mandatory for the chairman of the audit committee to attend the annual meeting of the company to provide clarifications on matter relating to its functioning.
Section 192A provides for the passing of resolutions by postal ballot instead of transacting business at the general meeting of the company. The object of postal ballot is participation by shareholders of the company which are spread over length and breadth of the country. In a postal ballot resolution as proposed is either to be accepted. There is no discussion, debate or scope for amendment to resolutions besides there is a danger that letters sent by shareholders may be lost in transit or defaced.
Some of the issues that may be determined by postal ballot are amalgamation absorption, reconstruction, demerger, sale, lease of business undertaking buyback of shares etc. It must be clarified that while determining majority the number of shares held by shareholder must be taken into account.The concept of one person - one vote is meant for voting on show of hands and cannot be stretched to voting by postal ballot for all special resolutions.
The Act casts onerous responsibility on the director. Thus a person who is a director of a public company which has not filed annual accounts & returns for any continuous three financial years commencing from April 1, 1999 or has failed to repay its deposits or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more shall not be eligible to be appointed as a director of any public limited company for a period of five years from the date on which such public company in which he is director has failed to file annual accounts and return or failed to repay deposit or interest or redeem its debentures on due date or pay dividend. Section 276 of the Act is also amended & now a person can be a director of only 15 public limited companies instead of 20 as provided earlier. This is a salutary provision as directors would now be required to take more interest & devote more time to the affairs of the company.
The author is a Mumbai-based chartered accountant
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